When tuning in to media coverage around property and particularly investment properties, there is a good chance you’ve heard the term ‘negatively geared’. Of course, as balance would have it, there is also another relative concept called ‘positively geared’.
Put simply, negative gearing is where you’ve borrowed money to invest, known as gearing, where the rent paid is less than the ongoing expenses of the property. These expenses include any maintenance, as well as your home loan repayments.
Around 60% of investment properties in Australia are negatively geared. A positively geared investment property is one that generates a surplus, meaning the owner is generating an income from the property.
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Why wouldn’t you positively gear, right? It’s a no brainer?
For starters, positively geared properties are harder to come by and typically found in more regional areas. In most cases you won’t simply be able to hike up the rent charged to a tenant, as they may move out in lieu of something more affordable. As a positively geared property is generating an income, you may also need to pay tax on these earnings.
On the other hand, negatively geared properties may attract an income tax deduction. Either way it’s important to seek tax advice, and before making any decisions, consult with a professional.
A good step to also consider is speaking with a lending specialist. They will guide you on home loan products available, and whether the type of property you’re interested in will end up positively or negatively geared for you from a cashflow point of view.
A lending specialist also offers you access to free property and suburb reports to help with your research. These reports provide you with valuable information such as individual property sales and rental data, suburb trends, average price growth, and overall suburb price growth.
Don’t forget that rent isn’t the only factor to consider in owning an investment property. Any increases in property value over several years may also have a financial impact, so it’s important to take all components into account and review any legislative changes or regional differences.
The rapid rebound in rents could see investment participation bottom out in the residential market through 2021, and start to climb. ABS housing finance data suggest the investor share of mortgage finance for the purchase of property through September was just 16.2% in WA, and 11.6% in the NT. These are the lowest rates of investor participation of the states and territories.
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Our lending specialists offer face to face, phone, and web-based chats to answer your questions and help you assess your budget and equity. We also offer free property suburb reports to help with your research. From there we help you reach your investment property goals!
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. You should always undertake your own independent property research, and obtain your own financial advice in relation to property investing.